Analysis: Fossil Fuel Demand Funds Ukraine War as Putin Grabs for Influence

As Russia’s invasion of Ukraine enters its fifth day, with colossal fossil BP pulling its US$14-billion investment in state oil company Rosneft, analysts are pointing to fossil fuels as both a cause and a beneficiary of an intense and brutal war, while others urge a faster transition to renewable energy as an antidote to Vladimir Putin’s aggression.

In the weeks and months leading up to the invasion, multiple news reports focused on Europe’s dependence on Russia for about 40% of its gas supplies, and accused Putin of restricting supplies in the hope of destabilizing the continent and distracting price-shocked consumers as a prelude to military action. Right on cue, fossil boosters in Canada, the United Kingdom, and the United States began touting their own fracked gas supplies as a practical alternative.

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Their messaging conveniently sidestepped the time lag in trying to address an immediate crisis with a longer-term supply source, not to mention the devastating environmental impacts of increased fracking and the mix of lower cost and better energy security available from renewables and energy efficiency.

But “concerns that Russia is using its gas supplies as a weapon to achieve its political aims are well founded,” The Guardian writes. “Fatih Birol, executive director of the International Energy Agency, noted that Russia’s decision to drop gas supplies to Europe by a quarter came as it was heightening tension towards Ukraine.”

Worries about Russia’s intentions also appeared to have shaped the messaging when the IEA released its country report for Canada last month, with Birol and a colleague touting the country’s potential as a reliable gas exporter through 2050 and beyond.

Putin’s Last Grab for Influence?

But the Guardian analysis raises a provocative question: whether Putin launched this attack because he understands that the influence his country has gained through its oil and gas exports is about to decline.

“Russia is effectively weaponizing its dominance over European gas supply for political ends,” writes Guardian climate specialist Fiona Harvey. “In the longer term, as Europe weans itself off gas and pursues net-zero emissions, the value of this political weapon will wane rapidly. Russia’s industries have never recovered from the fall of communism, and its economy is now based overwhelmingly on the export of fossil fuels, with much of the rest made up of energy-dependent mineral resources, such as iron, steel, aluminium and other metals, and some agriculture.”

So Kremlin strategists are “keenly aware that in the longer term the global move to net-zero threatens the whole basis of Russia’s economy and global influence.”

While Europe’s decisions to double renewable energy generation since 2004 and scale back nuclear generation have made the continent more dependent on gas, the geopolitics of those choices are now “unignorable”, Harvey writes.

“It has taken the current crisis for Germany and the EU to recognize that [their] co-dependence on Russian gas is a geopolitical and climate nightmare from which they must finally awake,” said former Bill Clinton advisor Paul Bledsoe, now a strategic advisor to the Washington, DC-based Progressive Policy Institute. “Reducing Russian gas reliance is a huge climate and moral imperative that Europe must prioritize.”

“Russia never could have become such an oil and gas superpower without the help of western oil companies like ExxonMobil and BP,” adds veteran climate strategist Jamie Henn. And now, “as big oil tries to defend their investments in Russia, they’re simultaneously making the case that greater production at home will help combat Putin’s influence on the global stage. It’s like a drug dealer trying to convince authorities that the best way to take out a rival isn’t to crack down on drugs, but allow him to increase production. The net effect will be the same: more addicts, in this case to climate-destroying fossil fuels.”

EU Gas Demand Funds ‘Armed Ukrainian Hold-Up’

In the immediate aftermath of the Russian attack, German Chancellor Olaf Scholz shut down certification of the controversial Nord Stream 2 project, a pipeline from Russia that would have supplied enough gas to heat 26 million homes. That action prompted Globe and Mail European Bureau Chief Eric Reguly to declare NS2 a “geopolitical blunder” for both countries.

“NS2 is already one of the biggest white elephants in infrastructure history, a project that wasn’t needed, was opposed from every angle from the start, and never should have been built,” Reguly writes. And now, “NS2 is effectively, although not officially, dead; it now has zero chance of obtaining an operating licence from Berlin in the next few years, if ever. The war in Ukraine finally tipped it over the edge, an example of savage politics overwhelming serious commerce.”

But oil and gas transactions are still bankrolling the war, writes Corporate Knights CEO Toby A.A. Heaps, to the tune of $1.1 billion on February 20, the day Putin ordered troops into two breakaway regions in eastern Ukraine, and an estimated $1.5 billion on the day of the invasion, not including $395 million in additional revenue.

“It’s not much of an exaggeration to say that the armed Ukrainian hold-up is being paid for—in large part—by Europe,” Heaps adds. “The troubling reality is that if it were not for Europe and the rest of the world’s fossil fuel dependency, Russia would find it much more challenging to finance the type of full-scale invasion we are witnessing this week. Despite talk of tough sanctions, Russian gas exports to Europe are still flowing and have actually risen in volume since the invasion. Germany has paused approval of the Nord Stream 2 pipeline that would bring Russian natural gas to Europe, but its predecessor, Nord Stream 1, is still operating at full capacity.”

In the short term, the EU does have access to fossil gas from other sources, prompting the Statista data service to report that an out-and-out gas embargo would hurt Russia more than its increasingly nervous customers. The Globe and Mail points to supplies from the Middle East, the Caucasus, and North Africa, among others, that could fill the immediate gap.

But the bigger issue is that EU decision-makers “have overemphasized building gas infrastructure instead of diversifying energy sources,” the Institute for Energy Economics and Financial Analysis (IEEFA) concludes in a new report.

“Instead of diversifying the EU’s sources of energy to replace gas, Europe has spent a great deal of time diversifying gas supply routes, particularly pipelines from Russia,” said co-author Ana Maria Jaller-Markarewicz, the institute’s energy analyst for Europe.

When the continent’s current gas supply strategy began taking shape in 2004, “Russian gas offered the cheapest and most abundant replacement for the EU’s falling output, setting the stage for Russia’s increasing dominance of European gas markets,” IEEFA adds. But “the emphasis on building redundancy in gas infrastructure undermined a more fundamental priority—the need to move away from gas entirely, and towards more secure and sustainable energy sources like renewables that are more resistant to political and market disruptions.”

BP Dumps Rosneft

On Sunday, British colossal fossil announced that it was “exiting” its $14-billion investment in Russian state fossil Rosneft. Until now, BP’s 19.75% share of the company accounted for more than half of its oil reserves. But the breakup looks serious: The Washington Post says BP’s current and former CEOs, Bernard Looney and Bob Dudley, have left the Rosneft board “with immediate effect”.

“Russia’s attack on Ukraine is an act of aggression which is having tragic consequences across the region,” BP Chair Helge Lund said in a statement. “BP has operated in Russia for over 30 years, working with brilliant Russian colleagues. However, this military action represents a fundamental change. It has led the BP board to conclude, after a thorough process, that our involvement with Rosneft, a state-owned enterprise, simply cannot continue.”

The Post calls the BP announcement, one of a flurry of world-wide economic moves against Putin, an “abrupt divorce” that ends one of the biggest-ever western investments in Russia. It was apparently driven, at least in part, by pressure from the UK government. “Russia’s unprovoked invasion of Ukraine must be a wake-up call for British businesses with commercial interests in Putin’s Russia,” tweeted Business and Energy Secretary Kwasi Kwarteng, who reportedly summoned Looney to a meeting Friday to express concern about BP’s relationship with Rosneft.

The business relationship has been controversial (in conventional political circles) since 2014, when Russia first invaded Ukraine and annexed Crimea, the Post says. Now, “it is unclear whether BP will find a buyer for its shares or simply walk away from them. But the company is already essentially erasing Rosneft from its books, saying it will no longer recognize a share of Rosneft’s net income, production, or reserves.”

As The Energy Mix went to virtual press last night, there was no word on whether U.S.-based colossal fossil ExxonMobil would follow BP’s lead. Exxon’s extensive dealings in Russia were seen as a signature achievement for then-CEO Rex Tillerson before he was appointed U.S. secretary of state by Donald Trump.

‘Zero-Carbon Rocket Boosters’

The current military crisis “puts zero-carbon rocket boosters” on the push to diversify Europe’s energy supplies out of fossil fuels, one analyst told The Independent.

“The crisis we’re currently seeing has resulted in yet another jump in gas prices” in Germany, Poland, and other countries that draw a lot of their gas from Nord Stream 1, said Dr. Jeff Hardy, an energy policy specialist at the Grantham Institute at Imperial College London. “Gas supplies will become tighter, particularly if there are sanctions or withdrawal from getting gas from Russia by any [EU] member states. The gas requirement will still be there, so it will have to come from somewhere else. It will tighten the market.”

For the UK, that reality has “put a lot of impetus behind the need to get away from gas and fossil fuels generally,” he added. “That is the long-term plan and what the net-zero strategy entails. I think this puts zero-carbon rocket boosters beneath those plans.”

With gas heating 85% of UK homes and still a crucial resource for the country’s industries, “the first thing we need to do, and get a lot of momentum behind, is to use less energy generally,” Hardy told The Independent’s environment correspondent Harry Cockburn.

“High prices for energy should be a sign to government to get very serious about energy efficiency in homes and in businesses, and bring down that overall energy use—the cheapest way to burn gas is to not need to burn gas,” he said. “Secondly, because we are reliant upon gas for electricity, we need to reduce that reliance, and the best way to do that is build a lot more renewables very quickly.”

Advantage: Renewables

Veteran climate hawk and 350.org co-founder Bill McKibben agrees that rising energy prices are the vulnerability western countries face in a standoff with Russia.

“So now is the moment to remind ourselves that, in the last decade, scientists and engineers have dropped the cost of solar and wind power by an order of magnitude, to the point where it is some of the cheapest power on Earth,” McKibben writes for The Guardian. “The best reason to deploy it immediately is to ward off the existential crisis that is climate change, and the second best is to stop the killing of nine million people annually who die from breathing in the particulates that fossil fuel combustion produces. But the third best reason—and perhaps the most plausible for rousing our leaders to action—is that it dramatically reduces the power of autocrats, dictators, and thugs.”

While Germany may be going through a moment of regret for its decision to phase out nuclear generation in the wake of the 2011 Fukushima disaster, McKibben says the war news from Ukraine points to “another of the advantages of renewable power, which is that it’s widely distributed. There are far fewer central nodes to attack with cruise missiles and artillery shells—targeting reactors is pretty easy, but driving your tank across Europe from one solar panel to the next so you can get out to smash it with a hammer is comical.”

While the immediate crisis in Ukraine could draw attention away from the climate emergency, Inside Climate News adds, “there is also evidence that Russia’s foray could be inadvertently accelerating the transition to cleaner energy. As stocks plummeted on Thursday in reaction to Russia’s invasion, the European Renewable Energy Index surged as much as 9.3%. It was the biggest stock jump since the pandemic lows of March 2020 and posed a stark contrast to the European market’s collapse.”

“When there’s less certainty about other sources of energy, that will help renewables because they’re a cheap source of electricity,” said Joe Keefe, CEO of the fossil-free Pax World Funds. “They’ve become very competitive from a price standpoint and are good long-term investments.”

“I see an opportunity here as the economics for investing in renewable energy here in the Philippines might even be accelerated,” Ceferino Rodolfo, the country’s top trade official, told Inside Climate.

Climate Work Grinds to a Halt

But the immediate, devastating impact of the invasion has quite obviously ground climate and energy transition work in Ukraine to a halt. “We need to think about [the] safety of our families, and it is not possible to concentrate on the wording of the summary for policymakers under attack and bombing,” meteorologist Svitlana Krakovska, one of the first Ukrainian women to study Antarctica in the 1990s, told Climate Home News.

Krakovska later made a heroic statement to the closing session of the IPCC’s climate adaptation working group on Sunday morning.

“When you need to pack and leave in a few hours, all working meetings go on hold. When you don’t know if you will make it to Monday, planning a conference in June is also out of the question,” said Climate Action Network-International regional coordinator Olha Boiko, after she and her partner were awakened by 5:00 AM explosions in Kyiv.

“The war is not limited by politicians and army,” she added. “It touches all of us,” and “it’s sure hard as our friends and colleagues spend nights in the bomb shelters. We might spend the night in a shelter too tonight, nobody knows.”

Eco Action director Natalia Gozak said she felt “frustrated and shocked because this is real madness.” After spending years on climate dialogue, she told Climate Home, “in just a few days, all this work looks like it has disappeared because of the priority of defending the country.”